AB InBev Shows Rivals How To Swing Cost Axe As Activists Circle

Anheuser-Busch InBev set a high bar for other consumer-product companies seeking to boost profitability through cost cuts as they try to keep activist investors at bay.

The world’s largest brewer said it’s generating profit-boosting savings from last year’s $104 billion takeover of rival SABMiller at a faster pace than expected, spearheading an efficiency drive by packaged-goods companies ranging from Nestle to Unilever to Procter & Gamble Co.

AB InBev has led the industry’s drive to cut costs and consolidate under the guidance of 3G Capital, the investment firm whose partners back the maker of Stella Artois and Budweiser. The company’s approach to dealing with the food and drink industry’s stagnant sales has prompted alarm in executive suites, with activists Dan Loeb and Nelson Peltz taking aim at the sector.

Facing a proxy contest against Peltz’s Trian Fund Management, Procter & Gamble on Thursday posted quarterly sales and earnings that topped estimates, helped by Chief Executive Officer David Taylor’s $10 billion cost-cutting program that has involved shedding scores of brands. Nestle said revenue growth will be at the low end of previous forecasts, giving Loeb more ammunition in his campaign to lift profitability at the world’s largest food company.

P&G, Unilever

Nestle Chief Executive Officer Mark Schneider is taking steps to boost profit, including a possible sale of the US confectionery business. Unilever, which is also reviewing its portfolio, said this month that it was saving money on employee flights under a program that could see margins widen by more than one percentage point by year-end. Drinks company Diageo on Thursday raised its target for efficiencies. But none of those companies is as far along as AB InBev.

AB InBev’s shares climbed as much as 6.9% in Brussels trading, the steepest intraday gain in almost two years, after it posted a 12% earnings increase. Analysts had expected 7.9%. Sales growth of 5% also beat estimates and was the highest among major consumer-goods companies such as Coca-Cola and Danone in the second quarter.

The brewer cut $335 million of costs in the second quarter, part of an initiative that includes eliminating more than 5,500 jobs to capture $2.8 billion in savings from the SABMiller acquisition in the next three to four years.

“We’re not changing the $2.8 billion guidance but we are moving fast in that regard; we like first to deliver and then see what is next,” Chief Financial Officer Felipe Dutra said on a call with reporters. Earlier in the year, the company increased its savings target from $2 billion.

AB InBev has championed budgeting initiatives such as justifying every expense from scratch at the beginning of a new financial period. That’s an approach that Kraft Heinz Co., another company backed by 3G, has also embraced. The US company withdrew a bid to buy Unilever earlier this year after vehement objections from the Anglo-Dutch company.

Corona, Stella

AB InBev said the second half looks promising on the back of strong sales in markets such as western Europe and China. Larger brands in its roster such as Corona, Stella Artois and Hoegaarden will drive growth in that period, the company said. AB InBev is also seeking growth from new markets such as Africa, which it bolstered last year through its takeover of SABMiller. In the US, the Budweiser maker is devoting $2 billion to boost top brands and improve distribution.

The results come after AB InBev suffered setbacks in Brazil that hurt its performance last year, stripping management of bonuses and redoubling CEO Carlos Brito’s commitment to boosting returns.

“It’s been a painful period for the global beer leader but the worst is over,” Eamonn Ferry, an analyst at Exane BNP Paribas, wrote in a note to investors. “We can look forward to a strong second-half - AB InBev are back in business.”

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